Buying A Home In 2023? Read This First
You can watch my full YouTube video on this topic here!
The economy has been on a bit of a rollercoaster lately, with high inflation (the loss of purchasing power over time, which just means that your dollars won’t buy you as much next month or next year as they did today), high interest rates, and waves of sudden layoffs. With all this going on, you may be postponing getting into the real estate market right now, or remodeling your current home rather than selling it. But what if you are ready to buy?
Here are 4 things to think about before buying a home in 2023:
1. There may not be much on the market in your area, particularly for more affordable homes. Homes for sale nationwide, also called home inventory, are at about half their normal levels. A number of factors go into this, including the high mortgage interest rates, worries about layoffs, and overall economic uncertainty. The result? Low housing inventory. Home builders have ramped up new home construction to help meet demand, but it takes time to get these new builds to market. There are a number of luxury homes on the market across the country, but the pool of buyers for these is fairly limited so they’re about the only thing sitting very long on the housing market this summer.
2. Mortgage interest rates are at their highest point in 22 years, hovering around 7% as of August 2023. Because of this, most people are sitting tight in their current homes, rather than move and having to deal with the high mortgage interest rates on their next home. That makes it the highest interest rate since 2001, and certainly affects the overall cost of homeownership. The higher the mortgage rate, the more your mortgage will cost you over the life of the loan. If you’re taking out a 30-year mortgage, this will hit your wallet especially hard in the long run.
3. Median home prices are up nearly 30% in many parts of the country right now when compared to pre-pandemic levels. The median US home sale price right now is $416,000. Compare that with the median home sale price in August 2023 of $323,000 and you’ll see just how much home prices have been affected by inflation. What this means for you is that you’ll most likely be overpaying for your new home, unless housing prices continue to rise long-term at the rate they’ve been over the past 2 years, which while possible doesn’t seem that likely given the historic ups and downs of the housing market.
4. You’ll need an excellent credit score and (most likely) 20% down to qualify for anything even slightly under that 7% mortgage interest rate threshold. It’s always important to have a good credit score, and especially so when you’re getting ready to take out a loan. Watch my YouTube video on how to fix your credit score here, if it needs some work! You’ll need to be prepared to make a sizeable cash down payment as a new homebuyer, much more so than has been required in recent years. The main exception to this is active-duty and former military members, who may be eligible for better mortgage rates under both the VA loan and the Servicemembers’ Civil Relief Act, which limits the interest rate on any debt military members have to a maximum of 6% while on active duty.
The timing isn’t great for buying a new home in 2023, to be honest. You know what’s best for you and your situation, but from a financial perspective it’s typically best to buy a home when the interest rates are lower, there are more affordable homes available to choose from on the market, and you don’t have to put 20% down, which can be difficult especially if you’re a first-time home buyer. You can watch my playlist on YouTube for more home buying tips!
In the meantime, consider continuing to rent or staying put in your current home for now, if you want to bide your time and get into the housing market when conditions are more favorable. That being said, you’ll find sellers in any market who either underprice their home or are just needing to sell ASAP for reasons of their own, so keep your eyes open for a bargain even in the current market conditions!